Vancouver Housing Affordability Declines in Second Quarter
While owning a single-family detached bungalow in Vancouver would take up 91 per cent of a typical household’s pre-tax income according to an RBC report, a Vancouver mortgage broker doesn’t expect a huge drop in prices anytime soon.
Mortgage broker Dave Foran said he expects the market to pick up in September, once the normal summer lull is over.
While prices have come down a bit during the lull, those decreases are not reflected in the latest RBC Economics Housing Trends and Affordability Report, released Monday and which covers the second quarter of 2012, said Robert Hogue, senior economist at RBC.
It found that “extreme unaffordability conditions” in the Vancouver housing market are dragging down the provincial and national measures as well.
“Housing affordability in British Columbia remained poor and worsening in the most recent quarter,” said Robert Hogue, senior economist at RBC. “ ... The situation is far less severe in other parts of the province. In Victoria, for instance, the share of income needed to carry the costs of a mortgage at market prices for some housing types is almost half that of Vancouver.”
Hogue said he expects the next quarterly report will show improved affordability due to falling prices, but that an interest rate hike early next year would send the cost of owning a home in Vancouver upward again. RBC expects the Bank of Canada will raise interest rates in the first quarter of 2013, Hogue said.
Foran’s clients seem to be on the same page as RBC. Foran said he has a higher-than-average number of clients with pre-approved mortgages waiting to see if prices will come down, while many don’t want to wait because they’re concerned about interest rates going up.
“Some are being quite cautious, while others are jumping in to get a good interest rate,” Foran said. “I don’t see a huge drop in prices coming or a huge increase in interest rates.”
While Foran agreed that single family homes in Vancouver are not very affordable, he said there are many other options, such as townhouses or condos, that are still within reach. “A lot of the builders are getting away from single-family homes,” Foran said. “I think people are going where they can afford.”
Vancouver has the least affordable houses in the country, by far, although resales are falling and the market has cooled. Year-to-date resales have fallen 18 per cent in Vancouver, compared to a year ago, while the Real Estate Board of Greater Vancouver reported that July sales were the lowest total in the region since 2000, with sales 31.2 per cent below the 10-year July sales average.
The new housing price index slipped 0.9 per cent in Vancouver in June 2012, compared with June 2011, Statistics Canada reported earlier this month, while the MLS Home Price Index composite benchmark price for all residential properties in Greater Vancouver over the last 12 months has increased 0.6 per cent to $616,000 and declined 0.7 per cent in July 2012 compared to June 2012.
New mortgage rules were brought in last month that shorten the maximum amortization to 25 years from 30, which is also expected to dampen the market.
Despite these factors, affordability declined for all housing categories, with the RBC measures for Vancouver going up between 0.4 percentage points and 2.2 percentage points in the second quarter.
The report says that in Vancouver, home ownership costs, including mortgage payments, utilities and property taxes, take up 91 per cent of a typical household’s monthly pre-tax income. As a comparison, Edmonton’s affordability measure is 32.4 per cent and Toronto’s is 54.5 per cent.